Bank of Montreal in Loan Alliance with Adviser Firm

Bank of Montreal is turning to the financial planning channel to boost its Canadian consumer loan business.

This month the bank plans to start offering investment loans, a type of personal loan, to clients of IPC Financial Network Inc., a network of financial planners based in Mississauga, Ontario.

Bank of Montreal has long offered investment loans to its own clients and receives referrals on an informal basis from financial planners, but Terrence Fitzpatrick, vice president of consumer lending, said this is the first time the bank has formed an exclusive alliance that will let it offer the loans on a wide basis.

Investment loans are made to consumers and collateralized by securities, such as mutual funds or equities. Individuals can use the loans for any purpose, but Allan M. Warren, president and chief executive of MRS Trust Co., a subsidiary of Mackenzie Financial Corp. of Toronto, said the vast majority of these loans are used to purchase securities.

Under Canadian law, interest on such loans is tax-deductible.

The loans are similar to margin loans, in that the consumer is borrowing money to buy securities and the loan is collateralized by the securities. But unlike margin loans, investment loans typically do not require borrowers to make an additional influx of cash if the price of the securities plummets.

The banks underwriting the loans can set whatever principal requirements they want, so that an individual could borrow up to 100% of the value of the securities used as collateral.

There is no direct equivalent for these loans in the United States, observers said. Peter Heyward, a partner at the Washington law firm Venable LLC, said bank loans that are used to purchase securities and are collateralized by securities will generally be covered by the margin regulations under federal securities law.

The alliance, announced last week, will give financial planners who work with IPC access to a Bank of Montreal Web site, where they can arrange for investment loans for their individual clients. Bank of Montreal will then underwrite the loan and pay IPC a referral fee. IPC clients will be able to get the loan from their financial adviser without having to go to a bank.

Mr. Fitzpatrick said investment loans are particularly interesting, because they tend to be much larger than most personal loans  $26,000 to $32,000 on average. The main lending criterion is the individuals financial profile, and people who take out the loans tend to be fairly affluent, he said.

Investment lending is a core competency for Bank of Montreal, and deals like this one will help it distribute that that competency more widely, he said.

This area of lending is fairly significant through our branch network and local referral sources, but this is our first customized referral program with a company the size of IPC, he said.

Mr. Fitzpatrick said that Bank of Montreal is negotiating similar alliances with other Canadian financial advisory firms.

Sam Febbraro, director of financial services at IPC, said investment loans often make sense as part of a long-term financial plan, since they can expand the possibilities for return on investments.

Though facilitating such loans could boost IPCs assets under management, the companys main goal is to give its affiliated financial advisers the ability to offer a full range of services to their clients, Mr. Febbraro said.

IPC, which serves about 900 financial planners with just over $4.5 billion of assets under management, has alliances with other Canadian banks and financial institutions that allow its advisers to offer brokerage services, credit cards, cash management accounts, and personal lines of credit.